Mumbai: Stakeholder Empowerment Services (SES), a proxy advisory firm, on Monday recommended shareholders of Tata Steel Ltd, Tata Motors Ltd and Tata Chemicals Ltd to vote in favour of a resolution to remove industrialist Nusli Wadia as an independent director from all the three firms.

The advisory said even as Wadia has performed his duty as independent director quite well and has done well in raising important issues, his continuation is not in the interest of the larger stakeholders as future boards must not be marked by bitterness among promoters and directors.

SES is the second advisory firm to recommend a vote to remove Wadia. In a change of stance, Institutional Investor Advisory Services (IiAs) in a 16 December note recommended shareholders to vote in favour of the resolution.

Both IiAs and SES have recommended shareholders to vote in favour of the resolution that seeks Mistry’s removal to avoid disruption and ensure continuity.

Nusli Wadia, chairman of The Wadia Group, got drawn into the ongoing Tata-Mistry spat after he, along with other independent directors of Tata Chemicals, Tata Steel and Tata Motors, reposed faith in Cyrus P. Mistry, the ousted chairman of Tata Sons Ltd, during board meetings in November. Tata Sons accused him of “acting in concert with Mistry” and sought his expulsion as an independent director from all three firms. Taking strong objection, Wadia called the move libellous and threatened Tata Sons to withdraw the notice that sought his removal, or face legal consequences. On 16 December, he slapped a Rs3,000-crore defamation suit against Tata Sons interim chairman Ratan Tata and the board of directors of Tata Sons.

The defamation suit prompted IiAS to change its recommendation from “for” to “against”.

“Given this, we believe the relationship between Nusli Wadia and Tatas has become antagonistic and will therefore likely be a distraction for the boards,” IiAS said.

Global proxy advisory firm Institutional Shareholder Services Inc. (ISS) has recommended its shareholders to oppose the resolutions for removal of Wadia and Mistry. “The drawback of supporting the removal of Mistry and Wadia is that if there is a governance problem, it won’t go away by removing allegedly rebel directors; and it’s unclear their removal would lead to better performance or decision-making,” ISS said in a note on 15 December.

SES in its report said it reiterates that all the issues raised by Mistry and independent directors, including Wadia, must be investigated by a third party independent investigator and “truth be told to shareholders”. If any of the issues are found to be correct, not only corrective action be taken so that it does not happen in future, but also that those guilty of past actions must be punished in accordance with the law, it said.

SES further states that Tata companies have not dealt with the issue properly and have not been fair to Wadia and to the shareholders. “They could have responded to Wadia in confidence and informed the shareholders accordingly. No response is not a good governance practice. SES does not fault Mr. Wadia,” it said.

However, SES believes the levels of hostilities between the Tatas and Wadia have reached a stage that Wadia’s presence on the boards of companies under the control of Tata Group will be counterproductive and the board will certainly be divided. Even as Wadia could have fulfilled his duty as independent director, he could have brought the issues to the board’s attention and could have asked the board to communicate the same to the stock exchanges. “Only if his efforts failed, he should have brought this in public domain. However, the question that remains despite all sincerity of Wadia is why he has kept silent till now?” asks SES.

SES finds that in the larger interest of the companies and its stakeholder, Wadia must not continue. “Not because SES finds him wrong, but shape of future boards of the companies must not in any way be marked with bitterness amongst board members and promoters,” it says.

Shareholders of five Tata companies including Indian Hotels & Co. Ltd, Tata Steel, Tata Motors, Tata Chemicals and Tata Power Co. Ltd are meeting in the next two weeks to consider a resolution put up by these companies to expel Mistry as a director. Shareholders of Tata Consultancy Services Ltd and a few other companies where Tata Sons has a majority stake have already removed Mistry as a director.